Kegler Brown " Construction Law Newsletter

July 2007

In This Issue

How will the Fairness in Construction Contracting Act be construed in view of Dugan & Meyers?
Risk Management 101 For Highway Contractors
Sub Victorious on Mechanic's Lien
OSHA and Multi-Employer Worksite Safety Responsibility
Firm News

How will the Fairness in Construction Contracting Act be construed in view of Dugan & Meyers?

Donald W. Gregory,
Construction Law
Chair

Contractors are gravely concerned with the perceived erosion of the Spearin doctrine in the Dugan & Meyers case, while owners are applauding their perceived relief from “delay claims.” However, the precedential value of this case may be limited by the application of O.R.C. §4113.62(C)(1) [part of the Fairness in Construction Contracting Act enacted in 1998], which provides that any contract provision is void and unenforceable “when the cause of the delay is a proximate result of the owner’s act or failure to act.” It remains to be seen whether the courts will construe this statute narrowly or broadly.
Contractors will be arguing that “delay” under O.R.C. §4113.62(C)(1) also includes claims for acceleration, inefficiency and other impacts. Meanwhile, owners will be arguing that “delay” means only time-based claims for working beyond the contract completion date, and does not include acceleration, inefficiency or other impacts within the contract period.

The outcome of that debate will largely influence whether contractors will be limited to only recovering delay damages (such as extended general conditions) as opposed to labor inefficiency losses arising from acceleration, out of sequence and other impact claims.

In any event, contractors will need to seek a time extension under the State’s contract documents to stay in the hunt for additional compensation on a time-based delay or impact claim.

Risk Management 101 For Highway Contractors

In an era of volatile material costs, it is important for highway contractors to implement strategies to minimize their risk. While unit price contracts tend to mitigate certain risks inherent in fixed-fee contracts, the contractor is still assuming the risk of cost increases and other unpredictable developments post-bid.

The first risk that contractors can minimize is the risk of subcontractors walking away from their bids. A contractor can rely upon a subcontractor’s bid if he uses that price in securing the work and the price of the sub is not so low as to trigger reasonable suspicion that the sub’s bid is mistaken. If a contractor has reason to believe that a sub’s bid is significantly low, he has a duty to inquire further before using that number. Contractors are also cautioned to avoid “bid shopping” or “value engineering” negotiations, or perhaps even an onerous subcontract, that may relieve a sub from his bid. A sub can be forced to perform a mistaken bid or be liable for the cost increase of going to the next highest bidder if the contractor follows the guidelines above.

Contractors on Ohio public work can generally withdraw their bids within 48 hours if the bid was (1) substantially low and (2) the mistake was the result of a math error or clerical mistake.

While contractors cannot condition their bids (upon price escalation for example) when bidding public work (or their bids will be declared unresponsive), contractors can reduce their risk by obtaining firm prices in writing from their subcontractors and suppliers.

In addition, ODOT provides some relief in its specifications (401.20) if the cost of asphalt increases by more than 5%. In addition, some ODOT bid proposals contain notes for fuel (#520 dated 3/1/06) and steel (#525 dated 8/2/04) price increases.

Absent a contractual escalation clause like these, a contractor may be unable to pass on significant price increases. A significant price increase, alone, is generally not enough to trigger relief under the “doctrine of impracticability.” Yet, the impossibility of providing the materials at any cost, due to floods, hurricanes, war, terrorism and other “acts of God,” generally relieves the contractor of his obligation to provide the item.

Finally, contractors can seek an equitable adjustment if conditions differ materially (1) from those indicated in the contract or (2) those ordinarily encountered in work of that nature, if timely notice is provided of the differing site conditions.

Contractors who recognize these risks and implement effective strategies to minimize these risks will have a better chance to remain profitable in the current industry climate.

Sub Victorious on Mechanic's Lien

An earlier newsletter (December 2006) reported that the Court of Appeals vindicated the right of a subcontractor to lien a factory for “improvements to a building, fixture, appurtenance or other structure” under the modern mechanic’s lien law.

The case was returned to the trial court for a jury trial in Guernsey County to determine the “amount due and owing” our client subcontractor (Mid-Ohio Mechanical) on its mechanic’s lien. After a hotly contested jury trial, the jury awarded the subcontractor every penny it sought ($768,396.67) under its mechanic’s lien.

The trial court is currently evaluating the subcontractor’s request for payment of legal fees from the cash escrow deposited by the contractor to “bond off” the lien.

OSHA and Multi-Employer Worksite Safety Responsibility

By Lawrence F. Feheley

Since 1976, OSHA has imposed responsibility for safety at multi employer worksites on a wide range of employers. Although a multi-employer worksite, which is one in which a number of contractors or employers work at the same site contemporaneously, is not limited to construction sites, construction is the most prevalent incidence of multi-employer situations.

The landmark OSHA decision in this area was the 1976 decision of the Occupational Safety and Health Review Commission in Anning-Johnson Co., 4 OSHC 1193 (1976). In that case, the Review Commission ruled that an employer whose employees are exposed to a hazard can be held liable even if it did not did not create the hazard, but it had the means to control or rectify the violation.

This was consistent with OSHA’s 1994 Field Inspection Reference Manual, which provided that OSHA citations could be issued to any employer on the jobsite who created or controlled hazards, or who corrected hazards, regardless of whether that employer’s own employees were exposed to the hazard or not. This was interpreted to mean that any employer who “controlled” the jobsite could be cited for safety violations at the site, regardless of whether that employer’s employees created the hazard. This meant that an employer or contractor who had supervisory control over the worksite, including the power to correct safety hazards or to require others to make corrections, such as a general contractor, could be cited for safety hazards at the site. Therefore, general contractors were often held responsible for safety violations committed by subcontractors.

Two months ago, the Review Commission issued a new decision which significantly retreated from this longstanding rule. In Secretary v. Summit Contractors, 21 OSHC 2020 (2007), the Review Commission ruled that an employer whose employees were not exposed to a safety hazard could not be issued a citation. The basis for this ruling was an OSHA construction safety regulation, which provides that “each employer” must protect the employment of “each of its employees” engaged in construction work. Although this was a 2-1 decision, with a vigorous dissent, the ruling appears to establish the principle that each contractor has responsibility for protecting the safety of its own employees at the site, and that a contractor will generally not be liable for the safety violations of other contractors.

The Summit Contractors case was somewhat unique on its facts and its future applicability may be limited to those facts. In the case, Summit Contractors was the general contractor on the site and it employed only supervisors to the job. All of the actual construction work was performed by employees of the subcontractors. A subcontractor was cited for not providing fall protection to its workers. Summit Contractors had assumed no responsibility for safety compliance, inspections or supervising other workers in its contract, and it did not otherwise undertake any of those responsibilities at the job. Further, none of Summit Contractors’ employees were exposed to the fall hazard.

By all accounts, the Summit Contractors decision appears to be a major shift in OSHA’s regulation of the multi-employer worksites. General contractors can still expect OSHA citations for safety hazards they create, or those to which their own employees are exposed (regardless of who created them). However, unless this decision is reversed on appeal, or by legislation or a later contrary decision, general contractors should not be liable for OSHA citations for safety violations committed by subcontractors simply because of their ability to control the jobsite.

Firm News

Don Gregory and Mike Madigan are presenting complimentary “in-house” seminars for contractors with suggestions on how to survive in the post-Dugan & Meyers world. If you would like to host a seminar at your office, contact either Don or Mike.

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Kegler, Brown, Hill & Ritter's Construction Law Newsletter is prepared by the Construction Law practice group.

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